Everyone wants to launch a startup, hoping to strike it rich with the next big idea. However, it’s important to understand that every new business cannot be called a ‘Startup’.
Unlike a typical small business that only aims to sustain itself and provide a livelihood for its owner, a startup aims to multiply and become a major player in its industry, competing with Reliance, Tata, Meta, and other established giants.
Startup funding should be pursued only by businesses with a clear vision and desire to become big players in their respective markets.
To secure the necessary funding, startups often have to go through different funding stages. If you wish to own a startup, you must know how the Startup funding begins and reaches its final destination.
WHAT ARE THE SEQUENTIAL STAGES OF STARTUP FUNDING?
(i) Bootstrapping –
Startups usually begin their journey with the founders investing their savings in the business. It is also important because how will you convince the investors to put in money if you are not willing to bet on yourself?
Next comes family, friends, and relatives. If the idea is promising and the founders have a strong network and credibility, they may be able to secure initial funding from their network.
This form of funding is commonly known as bootstrapping.
(ii) Seed Funding
Seed funding is the infancy stage of a startup, where money is required to further develop the idea.
To secure seed funding, startups often turn to angel investors, who are high-net-worth individuals that invest in early-stage startups in exchange for equity.
Securing seed funding can be challenging, as investors are taking a significant risk in investing in a new and unproven idea, which is also why these investors are ‘angels’ for Startups.
(iii) Series Funding
At this stage, your product has picked up demand, and you are seeing a consistent revenue stream.
You are looking for expansion, and this is the stage where some serious funding is involved.
Here come Venture Capitalists, Private Equity Funds, Hedge Funds, and Banks.
The series goes like Series A, B, C, D, etc. As we progress in the series, the startup’s valuation increases, and so does the funding amount.
With each round, the equity percentage available to dilute decreases as the business’ valuation increases. One of the most probable matrices of valuation and funding is as below:
It is when the company goes public and gets itself listed on a recognised stock exchange. Startups can file for IPO right after Series C funding and not go for Series D funding.
DO YOU REALLY NEED A STARTUP CONSULTANT TO OBTAIN FUNDS?
Startup consultants are very helpful for startups in raising funds and managing their finances.
They can guide startups from the early stages of idea generation and business model planning to the later stages of raising capital and preparing for an IPO.
Some ways in which financial consultants can help startups in fundraising include-
Identifying the right investors
Preparing founders for the grilling of investors and guiding them during the deal to get them the best deal
Raising debt facilities and providing active management and advisory services (also called Virtual CEO, CFO, and Other Management Personnel Services)
Assist startups in raising funds from venture capitalists by helping them with the necessary groundwork and preparations, thus simplifying the fundraising process.
Preparing necessary documentation such as pitch decks, financial models, consumption models, investor memorandum etc.
Startup owners are daredevils who seek to differentiate themselves from traditional businesses. While bootstrapping a startup may appear easier initially, complexities arise as you progress.
Often, people seek financial consultants when it’s too late, and some even give up, believing they won’t be able to overcome the challenges.
Hiring a Startup consultant from the inception of your startup always helps.
At Masterbrains, we have a proven track record of consulting startups, assisting them in guiding during ideation, preparation of business plans, marketing plans, logistics plans, financial models, business model, finding investors, creating a persuasive pitch deck, covering all the taxation and legal bases and providing all the necessary support.
Our services extend beyond fundraising and encompass marketing, recruitment, business plans, and networking. We aim to assist you in becoming a thriving and prosperous business; with Masterbrains by your side, you can confidently and correctly take each step towards this goal.
FAQs on How To Take Your Startup From Pre – Seed To IPO
What is the main difference between a startup and a small business?
A startup is a business with an innovative idea or a product aiming to grow rapidly with the help of external funding, with a view to disrupt the existing markets, and become a major player in its industry. A small business, however, focuses on providing its owner with a stable income and livelihood and typically has limited growth ambitions. Such businesses may or may not seek external funding and mostly rely on personal savings to finance their operations.
How can I determine if my business idea suits a startup rather than a small business?
A business idea is considered good, if your idea has the potential for rapid growth and scalability and can disrupt the existing market. If your business idea aims to become a significant player in the industry and has a unique selling proposition, it might be suitable for a startup. Whereas, in case of limited growth potential and less risk, it could be better off as a small business.
What is the role of an angel investor in the startup funding process?
Angel investors are high-net-worth individuals who invest in early-stage startups in exchange for equity. They provide seed funding, helping startups develop their ideas and products further. Angel investors take significant risks by investing in unproven ideas but can offer valuable mentorship and connections to startups. To sum up, these investors not only provide financial resources, but also offer mentorship and guidance to start-ups to accelerate their growth towards success.
What factors should I consider before approaching investors for seed funding?
Before approaching investors, ensure you have a solid business plan, a clear vision for growth, a strong team, and a unique selling proposition. Also, consider your startup’s financial needs, the potential return on investment, and the amount of equity you’re willing to give up in exchange for funding.
How do the various stages of series funding (Series A, B, C, etc.) differ?
Each stage of series funding corresponds to the startup’s growth and development, with each subsequent round involving more significant funding amounts, increased valuations, and different types of investors. As the startup progresses through the series, the equity available for dilution decreases due to the increased valuation.
How can I decide when it's the right time to file for an IPO?
Startups usually consider filing for an IPO after Series C funding when they’ve achieved significant growth, have a robust financial position, and are ready to enter the public market. However, the decision to file for an IPO should be carefully evaluated in consultation with financial advisors, board members, and legal experts to determine the right time and also the company’s readiness for the process.
What are the main benefits of hiring a startup consultant?
Startup consultants can help with fundraising, identifying the right investors, preparing founders for investor meetings, raising debt facilities, and providing active management and advisory services. They can also assist with documentation, such as pitch decks, financial models, and investor memoranda.
How can a startup consultant help in preparing the necessary documentation for fundraising?
A startup consultant can create and refine documents, such as pitch decks, financial models, consumption models, and investor memoranda, to present the startup’s vision, financial projections, and growth plans to potential investors clearly and compellingly. Fundraising documentation should be transparent and accurate, and startup consultants have the expertise to provide valuable insights to develop a comprehensive fundraising strategy to attract the attention of the potential investors.
What should I look for when choosing a startup consultant for my business?
Look for a consultant with a proven track record of helping startups, expertise in your industry, strong connections with investors, and experience in preparing documentation and navigating the fundraising process. Additionally, consider the consultant’s availability, adaptability, integrity, communication style, and fees.
Besides fundraising, in what other areas can a startup consultant assist?
Besides, fundraising, startup consultants can also help with marketing- research and analysis, designing recruitment & retention policies, evaluating business expansion plans, networking, and navigating legal and taxation issues. Their services can extend to overall business strategy and growth planning, ensuring your startup has a strong foundation and support system.
Master Brains is a consultancy firm based in Delhi having associate partners including Chartered Accountants, Company Secretaries, Cost Accountants, Investment Bankers, Registered Valuers and other consultants in the field of Finance, Tax and Law, PAN India.
